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Anyone involved in brand marketing will acknowledge that brands have worth above and beyond the tangible assets that support their manufacture, distribution and marketing. However, until a transaction takes place between a seller and a buyer, the value of a brand is an abstraction.

Unlike something that exists in nature, such as the specific gravity of an element, brand equity is a construct that represents the potential and future value of a brand. It is not fixed in nature, but depends upon the actions of the marketer and his agents.

In customer terms, a brand represents a promise. Its value to consumers is in giving them confidence in the performance of the product carrying the brand. It reduces risk, saves time and provides reassurance. As long as the product performs up to the level of the buyer's expectations, he or she is likely to continue buying the brand. And here we have the essence of brand equity.

Brand equity is the aggregate value of the purchases of customers who buy the brand repetitively. Its magnitude depends on their number, frequency of purchase, the extent of repetition and the relative price they pay for the brand.

By looking at brand equity from the perspective of the loyalty of its customers, and weighing its value by the relative price they pay for the product, it is possible to see that such "niche" brands as Absolut vodka have greater brand equity than larger volume competitors that rely on price promotion to move cases.

Brands with historically high loyalty levels seem to have four things in common: they offer a meaningful benefit to a sizable number of people, they never disappoint their customers, they communicate with their customers in a consistent and relevant manner and they rarely, if ever, use price reductions as inducements to buy.

The equity of many brands has been squandered by managements that seized on the fallacious concept of a "brand life cycle" to pronounce their brands terminal, instead of choosing the more challenging track of identifying strategies to keep them vital and relevant to their core franchises.

Joel Baumwoll

Managing partner

Baumwoll Consulting Services

New York

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